Pakistan is among few countries in the
world perhaps that despite having vast internal resources such as low-priced
coal and wind, and high insolation rate across the coastal hinterland-that
relates to solar energy-greatly depend on thermal resources to produce
electricity. Part of the reason reclines in the magnitude of investment power
sector requires and that is why integrated power production is pushed to the
second place in the energy deficient countries of not only Asia but also Africa
whenever there emerges a plan of meeting the energy shortfall.

Rather, short-term power production
measures are brought in to action to overcome the power shortfall. Rental power
plants are not different from any other fuel-combusted power plants except that
their EPC (engineering, procurement, and construction) is less time consuming.
The net effects are further deterioration of consumer's buying power since high
priced fuel- and gas-ignited electricity makes tariffs bulged outward income
bracket of common persons. People of Pakistan are reaping double-edged impacts:
power load shedding and high tariffs therefore. The other side of the picture is
not good as well.

A chain reaction ensues due to lack of
initiatives on the part of the government and high share of thermal sources in
the energy mix. Pakistan's external account position depends on prices of oil
and commodities. If international prices go downward, reduction in current
account deficit is perceptible and vice versa. With decline in prices of oil in
international market, the oil import bill decreased to $2.18 billion in July-Sep
this fiscal year as compared to $3.86 billion previously, translating into 36
percent decline in headline imports in September year on year (mainly driven by
fall in oil payments). The current account entered in surplus ($174 million) end
September because of lower imports and unprecedented surge in remittances. Too,
surplus was attributed to 14.2 percent decline in exports in September.

Now, it is not hidden facts that inter
corporate debts are increasing because of inability of governments' departments
to foot their bills. Oil marketing companies are the main victims of the
inter-corporate circular debts owing to repayments' inability of power
generation companies. Fuels purchase is a main component of expenditures of
electricity production companies. For instance, Kesc registered Rs37 billion as
fuels expenditures last year. While power producers owe payments to independent
power producers, they run operations on credit cycle underpinned by oil
marketing companies, which have payables to other stakeholders such as
refineries, banks. etc.

Pakistan State Oil had to face rising
receivables of Rs100 billion during the first quarter financial 2009-10.
However, the partial payment of Rs41.3 billion was accumulated through term
finance certificates worth Rs82.4 billion issued by the government owned Power
Holding (Pvt.) Ltd in mid of September. The non-payment had made the oil
marketing company to approach bank's loan to settle bills of oil refineries and
graduate letter of credit payments against oil imports. According to its
financial result, PSO recorded Rs1.6 billion financial charges because of bank
borrowing. PSO's total market share stood at 72.1 percent at the end of the
quarter.

The demand of furnace oil is increasing
day by day due to its consumption in furnace-combusted power plants in the
country. Government's focus to rid power crisis by deploying short-term actions
of captive power plants is also likely to amplify demands of furnace oil, a
second consumable fuel in power generation after gas. As gloom of winter is fast
enveloping the country and gas consumption is climbing, unfortunately furnace
oil remains a practical substitute for power generation. Constriction in gas
supply would also increase the black oil's demand. Gas shortage is expected to
be high this winter, unusual to seasonal shortage during November-February with
a shortfall exceeding one billion cubic feet per day in January 2010, according
to finance ministry's quarter report.

As far as monetary affairs are
concerned, rising demand will imply more outlays this time than nine months back
when international price of crude was hovering around $42 per barrel. Now when
the price has leapt to $80 per barrel, a 15 percent rise since July, and there
is a logical reason of why it would stay above that level, the oil bill of
Pakistan would not mirror what it was in the quarter of this year. In view of
recovery in economic fundamentals of United States, a biggest energy consumer
and resumption to live mode of Chinese economy all indicate towards upswing in
international oil price, which according to some analysts, will remain within
the current level throughout 2009.

What is in store then for Pakistan that
sees darned flight of its foreign exchange outside the country due to oil
payments and it is in dire need of external supports to inject fiscal stimulus
in the economy? The slow materialization of external pledges is making
government to borrow from banks to stabilize budgetary position. Overexerted
however may be the development that government's demand of liquidity crowds out
private sector from the formal credit market, noted the finance ministry's
report.

Both gas and oil reserves are on
decline in the country. Once rich in gas reserve, which is a customary source of
power generation, Pakistan stands on the point to reckon with prospects of
falling gas reserve. Oil on the other hand that is another source of power
generation is imported in the country and the country saves not much reserves of
residue oil to make electricity after meeting the other domestic requirements. A
study reveals power consumption growth in domestic and commercial sectors over
the five years has outpaced that in industrial sector. According to the
estimate, power consumption in domestic and commercial sectors grew 62 percent
while only 16 to 17 percent growth was recorded in industrial and agriculture
sectors.